Brazil’s much anticipated anticorruption law (Law 12.846/13) was approved on 1 August 2013 by President Dilma Rousseff and is set to come into effect 180 days following its publication in Brazil’s official journal on 2 August 2013.
The anticorruption law represents a significant development, as for the first time, corporate entities in their own right, including foreign companies with operations and branches in Brazil, will be subject to rigorous judicial and administrative sanctions for corruption. Previously, only public officials, employees and corporate officers were subject to criminal sanctions for corruption in their personal capacity.
The categories of offences under the anticorruption law are wide-ranging. The most significant aspects of the reform are as follows:
- Bribery – the offence is widely defined and consists of promising, offering or giving, directly or indirectly, any unjust advantage to a public official.
- Illegal sponsoring – corporate entities could be held liable for financing, paying for or otherwise sponsoring any offences set out in the anticorruption law.
- Concealment – any activities to conceal any illegal activities or interests.
- Public procurement – such as bid rigging, impeding or frustrating a due administrative process, committing fraud in a bid submission or seeking to obtain any undue advantage.
- Extra-territorial application – the law applies in respect of any offences against Brazilian or foreign public bodies by Brazilian corporate entities, irrespective of whether the offence is committed in Brazil or abroard, as well as any offences committed by foreign companies in Brazil.
- Strict liability – corporate entities will be held liable regardless of their intentions. Prosecutors will simply need to prove that any of the acts set out in the anticorruption law took place.
The envisaged administrative and judicial sanctions applicable to corporate entities are significant. The most relevant aspects of reform are as follows:
- Applicable administrative penalties range between 0.1% and 20% of the corporate entity’s gross annual turnover in the year prior to the commission of the offence. In the event that it is not possible to calculate the gross annual turnover, the law provides fixed administrative fines of up to R$60 million (circa US$26 million).
- Successors and affiliates of the corporate entity in question can be subject to penalties.
- Corporate directors and employees can be held criminally liable in their personal capacity depending on their personal involvement.
- Administrative penalties and judicial remedies can be applied in isolation or cumulatively, depending on the gravity of the offence.
- Unlimited corporate liability.
- Corporate entities can be barred from participating in public tenders, or receiving any form of public grants or incentives for up to five years.
- Judicial sanctions can be applied by courts at Federal, State and Municipal levels and available sanctions include the appropriation of any goods and the forfeiture of any rights illegally obtained in connection with the offences under the anticorruption law.
- Corporate entities can be banned or suspended from performing certain economic activities.
- Courts have the power to dissolve the corporate entity in question.
In common with other jurisdictions where anticorruption laws apply to corporate entities, Brazil’s anticorruption law provides a leniency regime and the mitigating circumstances which may be taken into account are as follows:
- Leniency agreements – which may be entered into by prosecutors and the corporate entities if the corporate entity (i) admits liability and identifies any other participants in the offence; (ii) provides evidence to prosecutors; and (iii) offers to cooperate before the prosecution makes its case. Leniency agreements allow a reduction of up to two-thirds of applicable penalties but this is without prejudice to the corporate entity’s liability in respect of the damage caused.
- Mitigating circumstances – have the potential to reduce applicable sanctions and include the implementation of anticorruption systems at an organisational level, the value of the contracts in question and the severity and damage caused by the offence.
The genesis of Brazil’s anticorruption law goes back to its ratification of the OECD Anti-Bribery Convention in 2000, resulting in a commitment to enact laws to establish the liability of corporate entities for the bribery of public officials. Following almost a decade of inaction, in October 2009 the administration of former President Lula da Silva initiated a legislative bill for the purpose of implementing the OECD Convention, which was approved by the Chamber of Deputies in February 2010 in the form of Legislative Proposal no. 6826/10. The bill was then debated by the Senate and approved on 4 July of this year in the form of Legislative Proposal no. 39/13.
The three year delay in securing the Senate’s approval was the result of intense lobbying efforts by engineering and construction companies, many of which have been involved in corruption scandals in the past. However, following the recent nationwide anti-corruption protests during the Confederations Cup, the Senate promptly resolved to approve the legislative bill by unanimity, subject to certain limitations, which were vetoed by President Rousseff in the final text.
Brazil’s delay in implementing the OECD Convention was widely criticised, especially as Brazil currently ranks 69th in Transparency International’s Corruption Perception Index and numerous international studies clearly demonstrate a correlation between levels of corruption and socio-economic development. In October 2012, Professor Mark Pieth, chairman of the OECD working group on bribery stated that Brazil ran the risk of becoming a blacklisted country for failing to meet its international obligations and, as a result, the OECD was considering measures to make it more difficult to enter into contracts with Brazilian public and private entities. Similar threats were made in relation to the UK’s failure to enact legislation to meet the OECD’s requirements, before the Bribery Act 2010 became law.
It is hoped that the coming into force of this law will reduce corruption in Brazil and make it a better place to do business. Companies with operations in Brazil may need to review their business practices and implement compliance systems in order to mitigate the risk of prosecution.